Tuesday, July 22, 2008

Yahoo partly acceded to the demands of corporate raider Carl Icahn by agreeing to seat Icahn and two of his proxy-slate candidates to Yahoo's board. The about-face move by Yahoo is a surprising turn in the ongoing harsh wooing of the company, which began in January with an unsolicited acquisition proposal from Microsoft.

Icahn, who holds about 5 percent of Yahoo's stock, got involved late in the process, trying to broker a deal between Yahoo's and Microsoft's management teams. Only a week ago, Icahn's efforts drew sharp denunciations from Yahoo's management. Roy Bostock, Yahoo's chairman, called the alliance of Microsoft and Icahn "odd and opportunistic," and rejected a new Icahn-brokered Microsoft offer to buy Yahoo's search business as bad for shareholders.

Icahn could have challenged the whole of Yahoo's board -- all of whom are up for election. However, this latest deal just adds two of Icahn candidates to the board: Jonathan Miller, a Velocity Interactive Group partner and former AOL chairman and CEO, plus one other candidate from the nine recommended by Icahn. Those two candidates will be seated on the board "upon the recommendation of the Board's Nominating and Governance Committee," according to an announcement issued by Yahoo.

In addition, the board membership will be expanded to 11 members and eight members of the current board will be up for election. A current board member, Robert Kotick, Activision Blizzard's CEO, will not stand for reelection. Yahoo's shareholders are scheduled to elect the board at Yahoo's Aug. 1 shareholders' meeting.

Yahoo's accommodation of Icahn comes just four days after Bostock and Yahoo's CEO Jerry Yang wrote a letter to stockholders calling Icahn "a corporate agitator with a short-term approach to his investments."

The letter also said Icahn had no plan for the company and that "Icahn and his slate lack the working knowledge of Yahoo!"

Icahn had originally supported Yahoo's current plan, to reject the sale to Microsoft and enact a search-ad deal with Google, according to the letter. However, Icahn then did "an extraordinary flip flop" and teamed with Microsoft on a "search-only proposal," the letter claimed.

Icahn has rejected the criticism of his fumbled deal proposal in which "we were willing to discuss keeping a number of the current board members and Jerry Yang as Chief Yahoo!," Icahn wrote in a letter to Yahoo's shareholders.

Microsoft originally offered to buy all of Yahoo -- a deal that company officials called off in late April over a price dispute. Now Microsoft just wants to buy Yahoo's search business to bolster its third-place ranking in search, where it badly trails Google and Yahoo.

Microsoft's latest proposal to buy Yahoo's search-ad business was disclosed in detail on July 18 by Chris Liddell, Microsoft's senior vice president and chief financial officer, in Microsoft's fiscal fourth-quarter report. Liddell described a complex formula in which "Microsoft proposed a 10-year minimum revenue guarantee totaling between $19.5 and $26.5 billion dollars." He also promised "no changes to Yahoo's governance."

So far, there has been no public reaction from Yahoo on Liddell's proposal.